At the world's largest energy forum in Cancun, Mexico on March 30-31, the power brokers of the oil industry saw the future.
And it isn't pretty.
The biennial International Energy Forum (IEF) drew ministers from 64 countries, members of the International Energy Agency (IEA), OPEC, and other dignitaries.
In short, all the heavy hitters on the planet were there..
Yet, very little news leaked out of these meetings.
In fact, the reporters were confined to a press room where the presentations were shown on monitors with no sound.
When the reporters asked for sound, the monitors were quickly turned off and the conference was declared to be "private." The media was simply shut out
Why all the secrecy? What they were hiding?
Read on to discover what the oil barons don't want you to know…and two ways you can use that knowledge to pocket solid profits for your portfolio.
The Mystery of "Peak Oil"
There's a lot of talk these days about "Peak Oil"-the point in time when more than half of the world's oil reserves are tapped. Basically, once we hit "Peak Oil" global oil extraction enters a terminal decline.
But here's the thing.
The heavyweights who met in Mexico know that "peak oil" is totally misunderstood–that investors who focus on how much crude oil is left are missing the point.
You see, serious observers know that "peak oil" has never meant the depletion of reserves. Instead, it means the peak of production-the industry's ability to get it out of the ground and to market.
Fact is, the oil insiders at the Cancun meetings quietly came to one unavoidable conclusion that could turn the global economy upside down.
A report commissioned by the IEF and delivered at the meeting by PFC Energy, a prestigious global consulting firm, has finally bubbled to the surface and sums it up best:
"This is not a world of "peak oil" where global hydrocarbon potential is exhausted, but rather of peak production, where the petroleum industry's ability to continue to increase-or even maintain-production of conventional oil (and eventually gas) is constrained. Exploitation of unconventional oil will provide additional liquids, but in all probability only at increasingly higher costs."
In other words, the days of cheap oil are over.
Artificially Depressed Demand Ready to Explode
"For the past two years, we've been operating under the shadow of an economic meltdown that has artificially depressed oil demand," Dr. Kent Moors, a noted expert in the field who writes a weekly newsletter for Money Map Press said in a recent interview.
When the economy tanked in 2008, people furiously pulled back, buying fewer cars, cutting back on energy use where they could. What's more, spiking unemployment meant fewer commuters clogging the highways, dramatically reducing the demand for gas.
The situation spawned a knee jerk reaction in the markets. Oil prices fell all the way from $147 a barrel in July 2008 to a low of $32.60 last year. It took oil ministers over a year to cut enough production to swing prices back to OPEC's preferred levels of $60-$80 a barrel.
But that's all about to change. The global economy is bouncing back, trade is picking up, manufacturing is at full throttle and companies are hiring again.
Crude prices recently cracked the $87 barrier and are headed higher…much higher.
Even though the energy experts at the IEA recently raised their forecast for world oil demand by 1.67 million barrels to 86.6 million barrels per day in 2010, they're not telling you the whole story.
The big boys already know a major production bottleneck is developing that could leave much of the world high and dry-setting off a brutal struggle for survival among nations battling for oil to keep their economies afloat.
In fact, the IEA knows that demand is going to go a whole lot higher very soon. And they also know that oil production, instead of increasing to meet new demand, is headed for a fall.
But don't take my word for it. A 2009 IEA presentation at a Department of Energy round-table tells the story:
As you can see by the chart, the IEA is relying on so-called "unidentified projects," to make up the difference between oil demand and production beginning as soon as 2012.
In other words, they have no idea where a whopping 43,000,000 barrels per day (bpd) are actually going to come from.
What's more, beginning in 2012, they expect global oil production to decline by about 2% per year- from 87,000,000 bpd in 2011 to 80,000,000 bpd by 2015- all while demand rockets to 90,000,000 bpd.
Within five short years then, there will be an astronomical 10,000,000 bpd gap between supply and demand–doubtless sending prices through the roof.
And it's not just the IEA that's making these pronouncements.
A report from our own U.S. Department of Defense paints exactly the same scenario.
The Department of Defense is the single largest consumer of petroleum in the U.S and the U.S. military is the biggest purchaser of oil in the world. In 2006 the U.S. Military consumed 117 million barrels or 320,000 barrels per day.
They need petroleum – the wonder fuel that can't be replaced–and lots of it.
A Joint Operating Environment report from the US Joint Forces Command states:
"By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day," says the report, which has a foreword by a senior commander.
Curtailed Refinery Production Spells P-r-o-f-i-t-s for Oil Companies
Oil is the lifeblood of America's economy. Currently, it supplies more than 40% of our total energy demands and more than 99% of the fuel we use in our cars and trucks. But in order to get those fuels you need refineries
After all, the average American doesn't go out and buy a barrel of crude oil when he needs to fill up his gas tank, or when he needs heating oil for his house.
And that's where the real problem for U.S. oil consumers begins. Turns out, refining is where the big integrated oil companies like Exxon and Chevron make their money.
Moors notes that refineries in the U.S. are running at only 80% of capacity, a level which allows the big oil companies to maximize profits by controlling how and in what quantities distillates flow to end users.
During the last oil price bubble from late 2007 to mid-2008, prices of crude oil rose only 67% from bottom to top, while prices of gasoline soared by 85% to over $4 a gallon.
There hasn't been a refinery built in the U.S. in 30 years.
And don't expect that to change anytime soon.
That's because it takes 10 years to bring a refinery online. With that kind of lead time, there are no guarantees the huge investment it takes to build one will ever pay off.
In fact, because of the higher sulphur content in oil obtained from "exotic" sources like oil sands and deep-water drilling, it's now cheaper to import refined gasoline than to import crude and refine it here.
Consequently, imports of refined gasoline are increasing at a faster rate than imports of crude oil, according to figures from the U.S. Energy Information Administration.
And even when we find reliable sources of new oil it won't even put a dent in the supply shortage.
Here are the facts:
The U. S. consumes 19.5 million barrels a day or 7.12 billion barrels of oil per year.
Despite the disastrous oil spill in the Gulf, there's still a lot of optimism surrounding Obama's plan to expand drilling off the U.S. coastline and in the Arctic National Wildlife Refuge (ANWR).
But let's take a look at the maximum estimates of the amount of reserves in those areas everyone's so hyped up about: ANWR has 17 billion barrels and offshore reserves contain 21 billion barrels.
That's a total of 37 billion barrels–at most. At a yearly consumption rate of 7.12 billion barrels, that gives us enough oil for just over five years…the world would soak that up in one year.
That's not a drop in a bucket, it's a drop in the ocean.
Where to Look Now for Profits From the Coming Oil Spike
The coming oil shortage will set off a frantic scramble by governments around the world to keep their citizens supplied with ever-scarcer supplies of petroleum products.
China is already making deals with the most unsavory leaders in the world to lock up oil supplies. Russia and the OPEC nations are preparing to withhold portions of their production from the open market so they can refine more at home.
But no matter who wins or loses in the race for reliable sources of the black gold one thing is certain: the price of oil is going up…way up.
U.S. investors, however, can still find ways to profit.
In fact, Moors thinks one investment in particular should be part of any investment portfolio.
Because of the increasing volatility bound to be part and parcel of the coming shortages the Power Shares Oil ETF (NYSE: DBE) should be a good play for conservative investors.
The ETF is an index composed of futures contracts on some of the most heavily traded energy commodities in the world-Light Sweet Crude Oil, Heating Oil, Brent Crude Oil, and gasoline. Because of its broad-based approach it tends to reflect the performance of the entire universe of crude.
For risk-averse investors who also don't want to be left behind, Money Map Press Chief Investment Strategist Keith Fitz-Gerald recommends the United States Oil Fund LP ETF (NYSE: USO).
U.S. Oil is a domestic exchange-traded security designed to track the movements of West Texas Intermediate (light, sweet crude oil). The basic investment directive of this ETF is for its net asset value (NAV) to reflect the changes in percentage terms of the spot price of light, sweet crude oil.
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